US banking justice - Ben Lawsky style

Benjamin Lawsky Benjamin Lawsky wants tougher action to make sure banks clean up their act

Another day, another major fine for a European bank.

Today, probably at the close of markets in America, BNP Paribas will become the latest bank to join the ignominious list of financial institutions hauled into the dock by US regulators for misconduct.

BNP will join HSBC (fined $2bn (£1.2bn) in December 2012 following money laundering allegations), Standard Chartered (fined $300m for breaking sanctions against Iran), Royal Bank of Scotland (fined $100m in December 2013 for similar offences) and Credit Suisse (fined $2.6bn for enabling US clients to evade taxes).

Barclays is also in the sights of the US regulators. Following its Libor fine, the bank has now been named in a lawsuit over the operations of its "dark pool", a private trading platform for institutions to deal shares.

Apart from Barclays, one name links all these cases. Benjamin Lawsky, the superintendent of the Department of Financial Services, the main New York State regulator.

Mr Lawsky is a name now high on the speed dial list of every major banking chief executive.

It was not always so. Peter Sands, the chief executive of Standard Chartered, would have been hard pressed to say much about him when allegations of American sanctions-busting were first detailed in a lawsuit compiled by Mr Lawsky.

The US media knew more about the allegations and the man behind them than Britain's fifth-largest bank.

Which might tell us more about Standard Chartered than American journalism.

'Heads roll'

Mr Lawsky's approach is very different from European regulators. Evidence is published and incendiary claims detailed.

Mr Lawsky has also made it clear that fining institutions is not enough. "Corporations are a legal fiction. You have to deter bad individual conduct within corporations," he said in an interview with The Financial Times in March.

Mr Lawsky wants to see heads roll.

His Twitter feed, alongside musings on the US football team's performance in the World Cup, includes supportive links to editorials attacking those seeking to defend European banks.

One such article appeared in the Wall Street Journal.

Its main argument? "Friendly members of the fourth estate aren't the only ones rushing to defend French bank BNP Paribas for allegedly violating US sanctions against Iran and Sudan. Virtually the entire French governing elite has decided that the most pressing economic issue facing the country isn't slow growth and high unemployment, but how to protect a too-big-to-fail bank from the consequences of its actions."

If you want to know what Mr Lawsky thinks about the knotty problem of how to actually punish a bank so it makes a difference, it is worth finding 12 minutes of your day to listen to this National Public Radio "Planet Money" broadcast.

It quotes one magazine profile of Mr Lawsky that described him as the "toughest cop on Wall Street". During the broadcast, you can hear Mr Lawsky, admittedly on a pretty scratchy smartphone recording from the back of the hall, saying that the constant uncovering of bad behaviour is "like Groundhog Day for the regulators".

He asks what are regulators "doing wrong" that they are still uncovering bad behaviour six years after the financial crisis.

And why banks are still behaving in the way they are.

Effective deterrent?

Is BNP's fine the "right way" to punish banks? Will the signal finally change cultures?

Certainly, it is of a size (equivalent to a year's profits) that could affect the bank's capital position.

That could raise the prospect of a cut in dividend, a capital raise via debt (issuing bonds) or equity (issuing shares) or a mixture of all three.

Raising money in the markets is always risky. The need for a prospectus opens up fresh opportunities for "bad stuff" to be revealed. The share price can become more volatile.

And, as the second biggest bank in Europe, BNP is also subject of the European Central Bank stress tests which are due to report in the autumn.

The bank's balance sheet is certainly going to be under a lot of scrutiny.

Mr Lawsky has alighted on the fact that the size of the fine is at least a partial solution to the issue of making reparations count.

Add that to a "heads must roll" approach and the US regulators certainly appear more aggressively on the front foot than those in Europe.

Kamal Ahmed Article written by Kamal Ahmed Kamal Ahmed Business editor

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  • rate this

    Comment number 19.

    Clearly on all levels, the public are not being told the truth.

    Capitalism has failed, lies and deceit keep it ticking.
    The attempts to control the publics way of thinking through media is down right dangerous.

    We need to start talking of a better way to run our society, before its decided for us by those who are lying to us.

  • rate this

    Comment number 18.

    Is time the EU do the same let us demand from the USA banks all our money back in view the 2008 crash was and it is there fault
    Or better still let as froze all the asset of all USA company in Europe they are the rouge treader with out any care for the consequence in any other word they are criminal.

  • Comment number 17.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 16.

    In essence BNPP is accused of a political offense. Apparently the US authorities believe those transgressions deserve a higher sanction, than colluding in fraudulent practices which very nearly brought the global economy to ruin (i.e. subprime ea)
    As repulsive as the Iran/Sudan regimes obviously are, does this really merit harsher treatment than bringing down the US & global economies?

  • rate this

    Comment number 15.

    Not really much point in fining the banks, if you have to pay to bail them out 2 weeks later is there? What kind of nonsense logic is that? What they need to do is sack all the management and the government should repossess the bank and sell off the infrastructure.

  • rate this

    Comment number 14.

    I think it's an excellent development to see SOMEONE pursuing the banks for their unscrupulous behaviour.

    On the subject of banking, I'd like everyone to know that I too am able to lose huge amounts of money whilst drawing a mega-salary with benefits and annual bonus in excess of my salary. I too am very talented and unless you pay me, I might just go to competitors and mess up there too.

  • rate this

    Comment number 13.

    Why fine a bank?

    Surely its our own money they will pay the fine with.

    Better for prison sentences to be dished out.

    So it may look like they are doing something, but in reality they are just taking their cut from the set up banking fiasco.

  • rate this

    Comment number 12.

    It would be nice to think that the US has a regulator with integrity and authority and that their financial institutions are acting morally, which is why foreign rivals are being pilloried.

    Unfortunately, as with steel tariffs, copyright wars, compensation culture vs BP and allegations of NSA collusion in corporate espionage, I suspect that it's more likely the US is reverting to protectionism.

  • Comment number 11.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 10.

    Surprised to see Banks acting unlawfully. They have been run by the most talented people on earth who act with the utmost integrity, benevolence and those in such positions are pillars of the community everywhere.

    Or may be not.

  • rate this

    Comment number 9.

    Is there any chance we could borrow Ben Lawsky & put him in charge of the FCA in Britain?

    No thought not!

  • rate this

    Comment number 8.

    With 10,000 suicides under it's belt, here's a tip:

    Make sure you have enough bullets and/or prisons.

  • rate this

    Comment number 7.

    Such Hypocrisy - Bush Jr's sub prime scam brought down world financial markets, $trillions lost and not a single US banker went to jail! The only reason non US banks even consider complying with US regulators (sic) is the potential loss of US dollar swap rights! Surely its time to phase out the US dollar (supported by $17+ trillion of US debt, duh!) as the world exchange currency?

  • rate this

    Comment number 6.

    Sceptical. Suspect that the size of the fine is related to the ability of the big bank to pay. The best way to try and stop this is to make individuals accountable - the current approach seems to be more about revenue raising rather than changing cultures

    When Enron went bust individuals were sent to prison - presumably because there was no money left in the bank ?

  • rate this

    Comment number 5.

    The Americans want to 'bang up' bankers (and indeed they have already done so!)

    Why haven't bankers and their auditors even had the wrist slapped here?

    Let me offer an answer CORRUPTION?

  • rate this

    Comment number 4.

    What these regulators are doing is trying to conduct US foreign policy by fining non-US firms.

    Imagine if France tried to fine Citi because Citi did business with a country that France alone had sanctions on. It's crazy!

  • rate this

    Comment number 3.

    #2 This is correct. Most of the USA appears to believe that the rest of world operates in accordance with US law. Of course if the part of BNP which is based in US, has broken US law then I have no issues with them being held to account.

    The other aspect that worries me is the US need to brief the media about impending investigations including revealing detailed evidence. Trial by media?

  • rate this

    Comment number 2.

    As in so many areas, the US seems to believe that their regulations, rules and laws somehow apply to the whole world - even if "offences" are not committed within their jurisdiction

    Worse still is that many governments allow this to happen because of some agreement(s) or other, but the US never co-operate in return

    Still. Suppose they have to service their $17tn debt somehow

  • rate this

    Comment number 1.

    At least the US regulators are trying. Over here it appears our regulators are in collusion with the banking fraternity, with the full support of the government. STILL no laws! And, as with all lawless societies, anything goes. In this case it's your money!


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